How to Flip Houses Without Losing Money

Welcome back to another episode of the Roots Podcast. I'm Max Moore joined by my co-host Tyler Lingal and today it's a boys only internal episode. We're talking about flipping in Indianapolis. Last week we dropped an episode with Dave Shore where we went super deep into his master class on like that guy 450 deals deep. He knows what he's doing. And I found myself jazzed up after the episode ready to go flip. And you you probably will too. Like go listen to it. You're going to call me and be like give me 10 distress properties. is I'll give you 5K a piece and we're going to go do it and you'll understand why. Disclaimer, slow down for a sec. All right, it's okay if you don't get a deal tomorrow because the deals are still going to be there. Um Tyler and I are about to dive into like how we would approach and and crunch on that knowledge. One of the things we're going to talk about is pre-market inspections, the importance of that, how to stack equity and and uh how to stack kind of your lending partnerships, leveraging your network. It's a key that we hear on every single episode of the Roots podcast. Um, and I think most importantly, Tyler's going to tell you why you're not a flipper and why you're in the messy middle. So, I think that might be a good place to start. What What's the messy middle? Yeah. So, the messy middle is this zone of flipping that we find most of our probably outofstate investors are flipping in, which is I'm never going to step foot on the property. I'm going to use a service for everything. For my money, I'm going to use a hard money lender. That's going to be 12% 14%. For my contractor, I'm going to use a GC um who's going to sub it all out for me. I'm going to use an agent. Guess what? There's profit for everyone in that deal but you. Right. There's no margins in the messy middle, which is that might have worked from like 2010 to maybe 2018. Indie. Yeah. There was like 30k checks to go around for that. Right. right now with asset prices, you know, in the past four years up whatever 50% and lending costs up on every hard money lender's terms and then the cost of materials and good up. Everything's gone up and the margins have gone down, way down. So really, there's two characters that definitely should be flipping. And if you're in the messy middle, you need to figure out how to move over to one or the other. And the first is the sweat equity person. You're gonna get in there, you're gonna lay the vinyl flooring, you're going to paint the place, you're going to pick out the fixtures. They're more boutique. They can probably do like one flip a year and then they're just gassed and maybe they make 60 grand from that flip or maybe a hundred if it's a really really good flip. And then on the other side, there's the professional is what I'm going to call it. So, this is a Dave Short. This is a um you know someone who is a professional entrepreneur who has built a team of probably someone helping them acquire the deals um and get a competitive deep discount on the deals paying for probably monthly marketing with an internal salesperson a VA probably have at least a you know 1099 crew but possibly an internal crew on W2 in scripted processes. So like they may even have like a warehouse with the cabinets and with the you know the paint cans or whatever it is. So really it's like the messy middle is the area of danger that probably me or you would be in if we just jumped in. Yeah. Probably no we we most definitely would be right because the the next place where I'm headed is I'm going to immediately start calling people to raise capital. It's like I'm in the messy middle because I know where the deals are. I know who can who can accomplish it. where I get caught up is the money piece of it, right? I don't want to go write that check the hundred $210,000 that like the deal that's burning a hole in my pocket would have to be. But if I can find and leverage the person, you know, to to come on board and be a partner to do it, we'd be in a great spot. Uh, however, if I go do that, uh, my attention is going to be very slim on the deal. It's probably going to sit for eight months. I'm going to get it on market and guess who's going to make money? Nobody. Probably the contractor maybe. Um I want to dive into how is Dave finding his deals. I want to I want to hit on that. I thought he had one of the coolest ways because typically people will say, "Well, you can find deals anywhere. Wholesaler this." He said he had 45 different ways. Uh but what it all boiled down to is the power of his network. And you hit on this a lot. Your uh the the tree coffee tree to make a million or however you've coined that term. What is it? Yeah. Net worth before the age of 30 over a million. Yeah. The first step is networking tree. But yeah, got it. You hit on this a bunch with your networking tree in, you know, getting a net worth over a million before you're 30. Uh what did you find intriguing through Dave's way that he's been finding deals, right? Yeah. So, he's not doing any paid marketing. He's not doing any uh we buy houses signs. He's not doing any of the things like you go online and watch YouTube videos on like here's how you find flips. Hire a via in the Philippines, get this list from PropStream and have them call it. Like he's not doing that. The overhead, right? He's doing paid per deal. So he has a bunch of agents that know, like, and trust him that know he's going to pay him 3% if they bring a juicy, motivated seller. Uh he gave an example of like a guy who lives in Denver and it must have had a relative pass away who goes there. It's just full of a bunch of crap and furniture and is just like thinking I got to make three trips back to this property and work with this agent and do this and he's like I'll write you a check for 250 and I'll pay your agent outside of that. Of course, he's getting those deals all day long because that agent is motivated. So he's had contractors bring him deals. Well, he's the number one call, right? like he has built a network so strong that who do you call when you have a distressed property in this subset area? You call Dave Short, right? It's exactly who you call and you call him because you know that you're going to get 15 grand in your back pocket snuffed in there nice and neatly right after closing. And there's one other thing that I think it's hard to do that fresh out the block because how do you get people calling you? But he's given back. So when he's excelled at flipping and learned, hey, I don't buy homes before 1970, he's teaching those skills, right? And he said a lot of his private money lenders and deal finders are people that were in his boot camps, right? So it's like as you learn, share what you're learning was a big takeaway because those people will be your allies as you pour back into your network. You said something like, "Oh, how do you pay that agent if invite the agent onto the deal?" like what if what if that's the leverage stack, right? They bring you a big juicy deal and you're like, "Hey, jump aboard and let's do this flip together and kind of uh find a partnership." What I was so impressed with is everybody goes to hard money cuz it's easy, right? Hard money is so expensive. The way that he's financing these things is literally through partnerships. 6040 stacks. Like he's making 60%, his partner's making 40%, they bring all the money, he brings all the skill. Mhm. That is so you're hitting on kind of the third big takeway, right, which is the equity stack. Yeah. And it's I haven't heard of it positioned that way, but it's so stupid simple that like why why why aren't we doing that? That makes no sense. It it makes so much uh it it makes the process so streamlined to know exactly how you are going to earn by doing a flip as opposed to oh what's my carrying cost every month what's the debt that has to be carried where people get burnt it just eliminates that right and my big question for him was like okay Dave that sounds great how do you meet these people like what if I don't have the boot camp what if I don't have the and it just comes back to the same network, right, of go tell people what you're doing, right? Go shout from the rooftops the process that you go through and the money that you're making when they go, I want to make that money, too. Oh, okay. Come like lend me uh, you know, 10% and I'll pay all the equity up front or all the interest up front uh, and we'll see if we like our flow together and if that works and we see some proven success, well, here's what you would have made as a JV. That's something he said and I was like, that's such a baller move, right? Makes so much sense and that's what gets me excited. But then you're like, you're in the messy middle. Calm down there, buddy. Uh, and if you want to go focus on it, go focus in that direction. But I thought that was huge. Yeah. I would love to ask you, he talked about pitfalls that new flippers especially make. What did you learn from him discussing that? Yeah, I I don't know if I anything illuminated crazy because well, he just backed up thoughts that I've already had, which is if you do a pre-market inspection, you will undoubtedly save money. And he even put dollar signs to it. He's like, "Every time I do a pre-market inspection, I save about $5 to $10,000 or I earn $5 to $10,000 more in profit." And the example he gave was like, "If there's mold in the attic, I can put $200 worth of kills on it. Any, you know, Hitman Solutions is going to come in. It's going to be 1,500 bucks to take care of that. Rightfully so, cuz Hitman's got to dig through and they've got to replace insulation that they sprayed on. They have to do it correctly. When it's all opened up, it's easy to solve those big ticket inspection items which come down to the foundation, comes to plumbing, comes to your attic, comes to your roof. Taking care of those items ahead, even ahead of the purchase. Do a sewer scope, negotiate it. Mhm. He was like he I mean, we're at fault of it. He said, "Agents will give me money off the deal. They'll give me discounts by simply asking if I can have an inspection and then having them get quotes on all these items. So, if the foundation's completely effed, they'll have a smart or a doctor crawlspace, whatever they're called, come in and write him a $25,000 scope work." He's like, "Okay, fine. That's that's cool. Just give me eight." And he's like, "I know I can do it for four, right?" Because he has the skills and labor. So, not only doing an inspection before he buys, but doing one before he puts the flip on the market and doing the work correctly so that when a retail homeowner gets that inspection back, they're not like, "What am I about to I'm I'm about to move into a house made of freaking sticks and straws full of mold and like it must you're creating a prof." And then you're going to battle them, right? It's like maybe you should have done the due diligence, the big three, right? which is the get in the attic, get in the crawl space, check for mold before cuz that's probably going to come up in the report if it's been a neglected home. Yeah. And then sewer scope. Yeah. Those three things, checking them, you probably can knock most of it out in the like 1,000 to 2,000 category versus when you have the licensed remediation companies come in under contract, people know this urgency. They're going to write you up an $8,000. And look who owns all those licensed remediation companies. It's agents, right? There's a reason, right? There's a lot of money to be made in that, a ton of profit to be made in that. And if you're just heading the objection, taking care of the small things, I I don't want to dig in too deep, but I know somebody recently put a home on the market with a roof that was totally effed because we got the pre-market inspection. He's like, "Well, we'll just deal with it when it comes up." It's like, that is not the notion because what happens when that comes up, you know, this can't control it. They're bringing an uncontrolled company in that you don't have a relationship with. as where they could have just totally leveraged the relationship of a roofer that I have. They could have done it for half the cost of whoever they're going to have come in. Right. Right. So, in summary, I think it's don't flip in the messy middle. Work to professionalize or just do the sweat equity, but understand the risks and vet the deal thoroughly. Get that pre-market inspection before you list it. Uh recruit people in your network to bring you deals. And don't be skimpy. Pay them $5,000 if you bring a deal. Yeah. If you're going to make, you know, x amount of profit margin for it, you need to have a line in for that. And then, uh, lastly, the equity stack. Why not do a joint venture to pray your private money person versus that monthly interest payment that makes it hard to sleep at night when you have that flip going, when you know you have that, I have that $12,000 interest payment coming. Just do a joint venture deal. 4060. Genius. I loved it. I'm ready to get out there and flip even though I'm probably shiny object syndrome. I'm going to delay. Uh but one once I'm ready to scale up and do that, I'm going to take those principles and absolutely run with them. And where you can build that network is at the next investor master class. The details are in the link below. But what I don't want you to do is just go join the masterass. Please, please, please jump on our newsletter. Tyler and I are now combining forces. Every Thursday, you'll get something from Roots Reality Co. uh whether it is a spicy hot deal sheet from me that's just got all your uh deals if you're in the messy middle to go chase around or if it is a indepth uh story version of just value in the marketplace uh written by not none other than Mr. Tyler over here. It's huge. Uh I read Tyler's stuff and I'm like, "Yeah, I know. I'm fully equipped now to go out and buy, you know, specific subset of deals because he's teaching me on what's happening in the marketplace." And it's huge in my inbox and it'll be huge in yours. Go sign up.